The Finance Bill 2025 has introduced a significant amendment to the definition of “capital asset” under Section 2(14) of the Income Tax Act, 1961. This amendment brings securities held by investment funds under the capital asset category, specifically targeting Category I and Category II Alternative Investment Funds (AIFs) regulated under the SEBI (AIF) Regulations, 2012.

This amendment aims to streamline the taxation framework for AIFs, ensuring clarity in the tax treatment of securities held by these funds. By recognizing such securities as capital assets, the government seeks to provide uniformity in taxation and enhance transparency in investment structures.

Government Amendment Further Expands Scope

A subsequent Government Amendment to the Finance Bill 2025 has further broadened the definition of “capital asset.” The latest revision now includes securities held by Category I or Category II AIFs where investments have been made in compliance with either the SEBI regulations or the International Financial Services Centres Authority (IFSCA) regulations. This expansion aims to provide greater flexibility to AIFs operating within India and offshore financial centers, thereby aligning tax provisions with the evolving regulatory landscape.

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